The European Green Bond, the ‘EU stamp’ for sustainable bonds, arrives

How sustainable finance changes after the EU Parliament vote

Simplify and make investments in sustainable activities transparent, with the aim of combating greenwashing. This is the purpose of the new regulation approved in October by the European Parliament for bond issuers who want to use the name ‘European Green Bond (EuGB)’ for the marketing of their securities.

Practically the MEPs want to predict some sort of European guarantee mark for sustainable bonds, designed to allow investors to direct their funds towards sustainable technologies and businesses with greater confidence.

The regulatory initiative continues along the lines traced at the beginning of the year with the Sustainable Finance Disclosure Regulation which introduced more rigid criteria on sustainable finance.

Already today, green bonds represent one of the main instruments with which Europe intends to finance investments in green technologies, energy and resource efficiency, sustainable transport and research infrastructures. Not by chance, the EU is by far the largest holder of green funds globallyas well as the most proactive ESG community.

By ensuring more transparency, the Union aims to promote financial products that can support the commitments made by the EU authorities in the climate transition.

What is the European Green Bond

The European Green Bond (EuGB) is a voluntary standard that gives a sort of “premium label” to green bonds. So, the European broadcasting companies they can continue to issue green bonds according to other standardsbut without any certification, unlike those ‘branded’ with the EU sticker which will be considered more reliable by investors.

The new regulation, approved with a majority of 418 votes in favor, 79 against and 72 abstentions, requires bond issuers who want to use the denomination ‘European green bond’ to follow a series of measures that protect the financial initiative and investors from risk of greenwashing.

Among the main activities to obtain certification are:

– the public disclosure relevant information on the use of the proceeds collected;

– preparation of a strategy for the green transition;

– the demonstration of how these investments are functional to the effective achievement of objectives

These disclosure obligations may also be respected by companies issuing bonds that are not yet able to comply with all the EuGB rules, but which still wish to demonstrate their sustainable commitment.

External auditors and transitional period

The European Green Bond also establishes a registration system and a supervisory framework for external auditors of European Green Bonds, i.e. the independent entities responsible for assessing compliance with the rules. It also establishes that any actual or potential conflicts of interest that may concern external auditors must be adequately identified, eliminated or managed, and disclosed in a transparent manner.

Until the European taxonomy, i.e. the list of investments deemed sustainable by the EU, is fully operational, issuers of green bonds will have to ensure that at least 85% of the funds raised is intended for economic activities in line with the taxonomy criteria.

To ensure transparency, issuers will need to provide investors with specific information through standard templates, which facilitate the evaluation of the use of proceeds and the comparison of green bonds.

The initiative represents a significant step towards creating a more transparent and competitive repairs market, promoting sustainable investments and contributing to the EU’s efforts to transition towards climate neutrality.